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Tribune Media Ends Merger Deal, Sues Sinclair for $1 Billion for Scamming Regulators

Tribune Media walked away from its $3.9 billion dollar merger agreement with Sinclair Broadcast Group this morning, and announced it would sue Sinclair for $1 billion for its conduct trying to get the deal approved, including withholding information and deceiving regulators.

The merger deal was controversial from the moment it was announced, pairing up Sinclair’s 192 stations with Tribune’s 42 TV stations in 33 markets, including well-known stations like WGN in Chicago and WPIX in New York. Sinclair was already the nation’s top TV station owner, and to acquire more stations, Sinclair would have to get TV ownership limits eased, something coincidentally provided by FCC Chairman Ajit Pai, who suddenly announced an interest in bringing back a “discount” on ownership caps for stations broadcasting on the UHF band. That policy was dropped after the country moved to digital over-the-air broadcasting, which negated the perception that UHF channels were less desirable and held lower value than lower VHF channels because of reception quality.

Sinclair’s Long History of Partisan Politics

Sinclair, unlike other TV station owners, also has a long history of being active in partisan politics, airing programming in favor of conservatives and openly advocating for the agendas of the Bush and Trump Administrations. Its long-standing policy to require its stations to air corporate-produced news segments and commentaries during local newscasts has irritated local newsrooms for years, but as the number of Sinclair-owned stations has grown, the practice was eventually exposed with a viral video depicting an uncomfortable collection of anchors from dozens of Sinclair stations decrying “fake news.”

In 2016, Sinclair aired 1,723 stories about the Huntsman Cancer Institute in Utah on 64 of its stations. Most were designed to look like one or two minute news stories, although Sinclair also produced a 30-minute show about the facility. What viewers were never told is that the stories were paid for by the Huntsman Cancer Foundation. In December, the FCC fined Sinclair a record-breaking $13.3 million for failing to disclose the story’s sponsor. The Democratic minority on the Commission called that a slap on the wrist and wanted the maximum fine of $82 million levied on Sinclair for its egregious and flagrant violation of FCC rules.

Sinclair’s past run-ins and controversies guaranteed its merger deal with Tribune would receive special scrutiny. The documents attached to the lawsuit filed this morning reveal Tribune got quickly upset with Sinclair’s hardball lobbying, accusing Sinclair of brazenly flouting the FCC’s rules and setting up the merger for failure.

In the end, even Sinclair’s apparent ally Ajit Pai distanced himself from the TV station owner in July, suddenly advocating the merger deal be forwarded to an administrative law judge for review, a sure sign the merger was in serious trouble with regulators.

Tribune Takes Sinclair to Court

This morning, Tribune officially pulled the plug on the merger.

“Our merger cannot be completed within an acceptable time frame, if ever,” Tribune Media chief executive Peter Kern said in a statement. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the merger agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”

That accountability will come in the form of its lawsuit that includes revealing documents about Sinclair’s behavior during the merger process, which includes allegations Sinclair recklessly withheld information and deceived the FCC and Justice Department about the transaction. If true, that could threaten Sinclair’s fitness to hold FCC licenses for its TV stations.

“From virtually the moment the Merger Agreement was signed, Sinclair repeatedly and willfully breached its contractual obligations in spectacular fashion,” Tribune said in its lawsuit. “In an effort to maintain control over stations it was obligated to sell if advisable to obtain regulatory clearance, Sinclair engaged in belligerent and unnecessarily protracted negotiations with DOJ and the FCC over regulatory requirements, refused to sell stations in the ten specified markets required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay – all in the service of Sinclair’s self-interest and in derogation of its contractual obligations.”

Tribune claims Sinclair only favored its own financial interests, not the obligations it had to Tribune to get the merger deal approved as quickly as possible. Tribune also accused Sinclair of threatening, insulting, and misleading regulators to keep control over stations it was obligated to sell.

The Sinclair Broadcast Group has come under fire following the spread of a video showing anchors at its stations across the United States reading a script criticizing “fake” news stories. (8:03)

“Sue me.”

Tribune’s executives gradually became more alarmed the more Sinclair negotiated with regulators, claiming Sinclair antagonized officials at the Justice Department. Tribune notes the assistant attorney general of the antitrust division got an earful from Sinclair, lecturing the official that he “completely misunderstand[ood]” the broadcast industry and was “more regulatory” than any recent predecessor.

When Sinclair was cornered by the Department of Justice over demands for station divestitures, the company summarized its position in two words: “sue me.”

Tribune pointed out the Justice Department was prepared to accept the merger with the appropriate stations being sold to new owners, but Sinclair balked. After a series of schemes were suggested to partly divest the stations, Tribune saw the protracted negotiations as unnecessary and imprudent. The agendas of both companies were radically different. Tribune wanted Sinclair to do whatever the FCC and Justice Department insisted be done, to get the deal done quickly. Sinclair wanted the deal and a way to maintain control, even indirectly, over almost every station involved in the deal. Tribune began threatening to sue Sinclair if it did not agree to the Justice Department’s terms.

Tribune’s growing unease with Sinclair’s behavior culminated in this email exchange between Tribune and Sinclair executives in late December, 2017.

Sinclair finally relented in February, 2018, but only partially. Exasperated Tribune executives were stunned as Sinclair now proposed to sell stations to third parties that maintained “significant ties to Sinclair’s executive chairman,” David Smith, or his family.

“Sinclair would effectively control all aspects of station operations, including advertising sales and negotiation of retransmission agreements with cable and satellite operators,” Tribune said in its lawsuit. “Under these proposed arrangements, Sinclair would continue to reap the lion’s share of the economic benefits of the stations it was purportedly ‘divesting’ and would have an option to repurchase the stations in the future.”

“Sinclair fought, threatened, insulted, and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell,” the lawsuit concludes.

The country’s largest owner of local TV stations, the Sinclair Broadcast Group, which reaches over a third of homes across the nation, wanted to get even bigger by merging with the Tribune Media Company. Sinclair is raising concerns among media watchers because of its practice of combining news with partisan political opinion. William Brangham reports for PBS Newshour. (8:58)

Charter Spectrum Refuses to Air Political Ad Slamming Spectrum for High Rates

Brindisi’s ad has been “censored” by Charter Spectrum.

A Democratic candidate running for Congress in central New York cannot get his 30-second ad slamming New York’s biggest cable company on Spectrum’s cable channels.

Anthony Brindisi slammed Charter Communications for “censoring” his campaign by refusing to air his latest ad which claims Spectrum has almost doubled its rates since taking over for Time Warner Cable and has broken its promises to the state. Brindisi also accused his Republican opponent — incumbent Rep. Claudia Tenney — of siding with the cable company, and “voted to give the company a $9 billion tax cut while they were raising our rates.”

The fact that Brindisi opens his ad claiming, “if you’re watching this ad on Spectrum cable, you’re getting ripped off,” may have been partly responsible for Charter’s refusal to air his ad.

“The ad did not meet our criteria,” said Maureen Huff, a spokesperson for Charter Spectrum.

Rep. Tenney

But the ad is not factually inaccurate, just hyperbolic. Many Spectrum customers complained about steep rate increases switching between their original Time Warner Cable plans and new plans offered by Spectrum. Some customers needed to upgrade to higher tier cable TV packages to keep channels they would otherwise lose and the company’s ongoing digital conversion convinced many customers they needed to rent set-top boxes for every television in their home, at a substantial cost.

Brindisi’s claim that “Claudia Tenney’s campaign is bankrolled by Spectrum,” is slightly misplaced, although Charter Communications has spent $5,000 on contributions to her campaign in 2017. In fact, Comcast is her third largest contributor, spending $12,900 on her campaign so far during the 2017-2018 election cycle. The Koch Brothers, a cable industry ally, comes in fourth.

Brindisi hoped to air his ads in the Utica and Binghamton markets through Spectrum, but will have to spend more buying time on over the air channels. He says he doesn’t like Spectrum’s stranglehold on local views aired on cable channels.

“It’s a scary precedent for them to be setting just because I’ve been a vocal critic of the company,” Brindisi told the New York Times. “I don’t think I should be precluded from informing the public about their practices here in New York State and letting people know that, at the same time they are raising your cable rates, they are a big beneficiary of the tax bill and a major supporter of my opponent.”

Watch the 30-second advertisement Charter Spectrum refused to allow on its cable channels. Anthony Brindisi is a Democratic candidate for Congress in central New York (30 seconds)

Frontier’s Latest Salvation Plan Doesn’t Include Significant Broadband Upgrades

While celebrating its success at cutting $350 million in expenses, Frontier’s newest plan to keep the company from drifting towards bankruptcy is a $500 million increase in revenue (and hopefully profits) with a series of “revenue enhancements” and cost cutting.

Significant broadband upgrades in legacy DSL service areas are not on the table, as Frontier continues to spend most of its capital on matching Connect America Funds (CAF) and state grants to expand broadband into unserved and underserved rural areas.

“Approximately 80% of our capital program continues to focus on revenue generating and productivity enhancing projects,” said R. Perley McBride, Frontier’s outgoing chief financial officer. “The focus of our capital spending remains consistent. We continue to focus on our CAF builds, using both wired and wireless technologies.”

Frontier has been criticized by some for spending too much on its network and acquisitions and not enough on shareholder return. The company suspended its dividend in February, and the share price has remained below $6 a share since July. After announcing its latest quarterly results and a new $500 million EBITDA initiative on July 31, the average share price posted only modest gains of around $0.25 a share.

Frontier’s business remains troubled, with looming debt repayments in its future. The date to remember is Sept. 15, 2022 — the day Frontier needs to repay $2 billion in unsecured bonds to maintain its credibility in the credit markets. If it fails to pay, the company could find future financing difficult, which is often what triggers a trip to bankruptcy court.

The year 2022 is also very important to Californians. Frontier disclosed it planned to expand rural broadband service to 847,000 unserved/underserved rural residents by the end of 2022, with specific commitments in the next few years to upgrade 77,402 locations, in part with CAF funding, increase broadband speed for 250,000 households, and deploy newly available service to 100,000 homes.

Frontier’s own deployment goals in California — goals the company may not be honoring. (Image courtesy of: Steve Blum’s blog)

According to the California Emerging Technology Fund (CETF), Frontier has no intention of meeting its rural broadband commitments. In effect, similar to Charter Communications, it merely made the commitments to win approval of its acquisition of Verizon’s wireline and FiOS business in California.

A day of reckoning for the company’s alleged failure to meet its obligations is likely forthcoming. Steve Blum’s blog notes Frontier isn’t saying much:

In its formal response to CETF’s allegations, Frontier never actually says that it kept to that timetable. All it says is that “Frontier sent a letter to the Communication Division dated March 8, 2018 on its commitments that includes a confidential attachment reflecting completed locations through December 31, 2017”. It sent a letter, but doesn’t say what’s in the letter or even claim that the letter documents fulfillment of its obligations.

CETF told California regulators a disturbing story about Frontier’s failure to perform and other allegations in its filing with the California Public Utilities Commission, alleging Frontier is reneging on the deal it made with the state and various stakeholders in return for getting its acquisition approved. The group also accused Frontier of failing to deliver on its affordable broadband offering, because the company made signing up difficult and bundled extra fees and surcharges onto the bill.

“Frontier launched its existing affordable broadband offer in late August 2016 and to date only 9,173 adoptions have been achieved, a mere 4.5% of the 200,000 household adoption goal,” the CETF wrote. “Due to the initial Frontier eligibility requirement that Frontier customers be a telephone landline Lifeline subscriber and the total bundled cost, the affordable broadband offer has only attracted 7,452 low-income subscribers, which is 190,827 households short of the agreed-upon goal.”

Frontier has a employer turnover problem in California, evident from this filing by the CETF. (Courtesy: CETF)

The CETF said Frontier was “shirking” and should face the maximum fine of $50,000 a day retroactive to July 1, 2016 for failure to comply with its obligations. As of the end of July, 2018 that fine would amount to over $39 million.

To comply with existing obligations to California, Frontier could have to spend in excess of $1 billion in the next two years. But Frontier has told investors it planned to spend no more than $1.15 billion on capex in fiscal year 2018 across its entire national service area. This could explain why Frontier may be stalling on upgrades in California.

Also raining on Frontier’s parade is the muted reaction to Frontier’s latest money-raising scheme. Shareholders appear lukewarm, with some openly skeptical that Frontier can deliver what it promises.

The plan’s success depends on:

  • Frontier’s ability to raise rates and find other “revenue enhancements” of $150-200 million. Rate increases drive customers to competitors, reducing revenue.
  • Vague “operational improvements” are expected to bring $150-200 million.
  • Customer care and support savings are anticipated to generate $125-175 million in EBITDA benefit.

Outgoing CFO McBride relies heavily on opaque corporate-speak like this, with few specifics:

“In addition to the dedicated resources, we are utilizing a new approach that will significantly accelerate the benefits of both revenue and expense initiatives. This new approach involves utilization of external expertise to significantly reduce the time to successfully realize our objectives. This will allow us to execute more initiatives in parallel while still managing day to day requirements of the business.”

In short, this suggests Frontier will outsource a lot of initiatives they used to manage in-house. The company also plans to start limiting truck rolls to customer homes if the company determines the problem is likely elsewhere in their network. It also claims it is cutting customer hold times at their call centers, which are still frequently outsourced.

What Frontier has made clear, again, is their determination to keep a cap on spending, which means much of the money Frontier will spend each year will go towards network maintenance, not service upgrades. Therefore, customers can expect incremental upgrades, usually when a construction project requires Frontier to replace existing copper wire infrastructure with fiber optics or at a building site for a new housing development. Most customers in existing neighborhoods served by legacy copper wiring on the poles since the 1960s will continue to be serviced by those lines until they are torn down in a storm or stolen. Frontier has consistently shown no interest in wholesale network upgrades in its legacy service areas.

DirecTV Now Adds NFL Network to Most Packages

Phillip Dampier August 2, 2018 Consumer News, DirecTV, Online Video 1 Comment

After raising rates last month for its cable TV streaming alternative, AT&T’s DirecTV Now today announced it was adding NFL Network to all packages except the budget-priced “Live a Little” tier.

Coming soon, customers will also have access to stream NFL Network through Watch NFL Network, available on NFL.com and the NFL app across connected TV and mobile devices.

NFL Network will provide extensive coverage of the NFL’s 2018 Preseason, airing the entire slate of 65 preseason games, highlighted by 15 live games. NFL Network’s live preseason schedule kicks off Thursday, August 9 with the New York Giants hosting the Cleveland Browns at 7:00 p.m. EDT. Also featured as part of NFL Network’s package of live preseason games are top picks Sam Darnold (Falcons-Jets, August 10 at 7:30 p.m. EDT) and Josh Allen (Bills-Browns, August 17 at 7:30 p.m. EDT), as well as eight playoff teams from 2017.

In addition to 13 Thursday Night Football games, NFL Network will televise a Week 8 International Series matchup from London (Philadelphia Eagles vs. Jacksonville Jaguars), a Week 15 Saturday doubleheader (Houston Texans vs. New York Jets and Cleveland Browns vs. Denver Broncos), and a Week 16 Saturday doubleheader with matchups to be determined.

Sports programming remains the most expensive component of TV packages. The addition of NFL Network will not raise the price of DirecTV Now at this time, but its cost will be a factor in future rate increases.

National Grid Banned Charter/Spectrum Workers from Its Poles Over Safety Questions

National Grid, the electric and gas company that owns the most utility poles of any company in upstate New York, banned Charter Communications workers from its poles for most of July after a third-party contractor working on behalf of Spectrum electrocuted himself and died.

The New York Public Service Commission went public with the utility company’s ban as part of last week’s 4-0 decision to cancel Time Warner Cable and Charter Communications’ Merger Order.

“The result of this tragic incident was the issuance of a statewide stop work order from National Grid, the largest pole owner in Charter’s territory,” the Commission wrote. “This prohibition remains in effect as Charter has persistently delayed in providing National Grid and the [PSC] responses to requested actions and information necessary to ensure safe and adequate service. As a result, Charter remains unable to install facilities anywhere in National Grid’s service territory. This incident remains under investigation as do wider safety issues associated with the company’s buildout.”

Syracuse’s Post-Standard newspaper reported the contractor, James R. Fogg, 39, of Fairfield, Maine worked for S.G. Communications, a contractor hired by Charter Communications to perform tasks it outsourced from its own technician and installer workforce.

Cattaraugus County, N.Y.

According to state police, on July 11 at about 4:36 p.m., Fogg was running Spectrum cable lines in Yorkshire, Cattaraugus County in southwestern New York when his truck’s extendable bucket or a tool Fogg was using made contact with National Grid’s electric lines, located at the highest point on the utility pole. Cable and telephone lines are placed lower on utility poles. Fogg was electrocuted by a high voltage line. Paramedics from Delevan Emergency Medical Services performed CPR before transporting him to Bertrand Chaffee Hospital in Springville, where he later died of his injuries.

One day later, National Grid issued a statewide stop-work ban on Charter Communications and its contractors. The newspaper reports National Grid wanted the cable company to explain what happened, why it happened and how the company will prevent such an accident from happening again. The PSC claims for much of July Charter failed to offer National Grid a satisfactory explanation, which effectively left company technicians forbidden to climb National Grid-owned poles statewide for three weeks.

The utility lifted its ban on Tuesday, hours after the newspaper contacted National Grid and Charter about the incident.

Charter claims it is looking forward to resuming network build-out activities in National Grid areas, but National Grid warns if another incident similar to the one on July 12 occurs, it can reinstate the ban on the cable company.

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